[Newsweek column from May 26, 1952, and reprinted in Business Tides: The Newsweek Era of Henry Hazlitt.]
At his press conference on May 8, Mr. Truman, asked whether the chief danger was inflation or deflation, replied that the country had to guard against both: and that was why it was necessary to have control powers — to prevent either one.
There is nothing new in this Scylla and Charybdis analogy. It runs like a refrain through the speeches of Leon Keyserling and the reports of the Council of Economic Advisers since that body was created. What is significant is Mr. Truman’s own espousal of the doctrine at this time. On top of the hasty removal of restrictions on the use of “strategic” metals, on state and local bond issues, on housing, on real-estate credit, and especially on general installment buying, on top of the violent denunciations by Administration spokesmen of every effort of Congress to economize at any point, this statement makes it unmistakably clear that what the Administration really fears and fights now is any lull in the inflation, any sag in the boom prior to election. In brief, it is prepared to throw all its “anti-inflation” policies into reverse.
It would of course serve Mr. Truman’s political purposes ideally if he could get Congress to swallow this fighting-both-devils-at-once doctrine. He could then continue both to inflate and to “fight” his own inflation. He could step on the accelerator of credit expansion with his right foot while he stepped on the resulting price increases with his left — always saving the country in the nick of time. The politicians of Europe have made a very good thing of this. The result is known there as repressed inflation.
The principal methods by which governments inflate are: (1) huge governmental spending, particularly deficit spending; (2) monetizing the public debt; (3) pegging or forcing down interest rates; (4) ordering wage boosts; and (5) encouraging private credit expansion. The Truman caliphate has resorted to all these methods. The principal methods by which governments pretend to “fight” inflation are by price fixing and wage fixing, usually accompanied by allocations, rationing, and subsidies.
These two sets of powers give a government unanswerable weapons for punishing political opponents (by crushing taxation, price rollbacks, profit cuts, inadequate allocations, seizures) and for rewarding political supporters (by favorable allocations, price or profit increases, wage increases, and subsidies). Through its life-and-death powers over everyone’s economic prospects, it has the power to keep everybody in line.
Politically attractive as such powers are to a ruling clique, they make no sense economically. They imply that a free economy cannot balance itself, but that the DiSalles and Arnalls and Feinsingers know just how to do it. They imply that inflation is some disaster that falls upon a country from the outside, like a flood or a plague of locusts. Inflation is in fact always and everywhere the creation of governmental policy. It is caused by the increase in the supply of money and credit. The way to halt it here is not to give the President “emergency” powers to halt it, but to deprive him of his present power to inflate. That the Administration knows how effective this deprivation would be is evident from its vehement objections whenever any proposal arises in Congress to free the Federal Reserve System from Treasury dominance.
As for price control, it cannot be repeated too often that as a cure for inflation it is completely fraudulent. It not only diverts attention from the real cause and cure of inflation. It adds further evils of its own. It abridges human liberty, encourages waste, and disrupts production.
The course before Congress is clear. It should allow price-control and wage-control powers to lapse completely. It should deprive the Administration of its present power to inflate. And it should repeal the provisions in its labor laws which compel employers to bargain with industrywide labor monopolies and which give those monopolies the power to bring the nation’s production to a halt.